Police unable to track illegal e-currency

Virtual currencies have filled a hole to act as the foundation of crooked trades.
Illustration: Karl Hilzinger

KEY POINTS

It is relatively simple to buy, use and sell online currency.

Criminals have latched onto the idea to pay for illegal transactions online.

Billions in stolen credit cards are being traded using online currencies.

Billions of dollars in stolen credit cards are being traded over the internet using online currencies, which are almost totally untraceable, according to local and international law enforcement agencies who admit they are powerless to stop it.

Although some forms of e-currency are legitimately used by online gamers in virtual worlds like Second Life and World of Warcraft, a far more dangerous type is being used by organised crime cartels and terrorist organisations with none of the transparency of traditional money.

Despite the best efforts of the US and global bodies including the FBI, US Secret Service and Interpol it is being used to pay for stolen goods, fund terrorists and launder dirty money potentially worth hundreds of billions of dollars a year.

More worryingly, local police sources indicated Australian law enforcement was lagging behind on the issue and federal authorities professed a lack of understanding of the issue.

Virtual currency first emerged in the late 90s as a harmless way to buy and sell products in online games. But in the mid-2000s criminals began latching onto the idea as a way to pay for illegal transactions online.

Popular systems like PayPal and MasterCard leave a paper trail and cash is relatively slow, so virtual currencies filled the hole to act as the foundation of crooked trades.

It is relatively simple to buy, use and sell the online currency.

People first use cash to purchase electronic credits, often through a third-party organisation. Then, after meeting prospective buyers or sellers in online forums, the conversation can be taken to private internet chat rooms where a deal is negotiated.

Once a payment platform is agreed upon, all it takes is a handful of clicks and untraceable cash is sent bouncing through the web among middlemen and computers to the real world’s most dangerous places.

According to a Federal Bureau of Investigations agent based in Canberra, the US government has been consistently stymied in its attempts to investigate criminal and terrorist funding due to the use of virtual currencies.

“It’s an issue that has been emerging for the past five to six years,” he told The Australian Financial Review.

“It’s definitely an area of concern because of the lack of regulation and oversight of the system, not just in the US but worldwide.

“The problem lies in the fact that it’s a very unregulated activity and is basically completely circumventing the financial systems and reporting requirements.”

The global trade of hacked and stolen credit card details worth billions each year is still the core use of virtual currencies, but the FBI agent warned criminal cartels that ran the networks in exchange for high commissions were constantly branching out.

The FBI spokesman, said he had personal experience of investigating virtual currencies being used to fund terrorist groups and they were irresistible for global crooks with good reason.

“This is a desirable way for criminals and those that want to break the law because [it’s] anonymous,” he said.

“I think we . . . might need some type of international convention and that will probably take quite a long time.”

One virtual currency, known as BitCoin, was recently put in the spotlight when an IT worker at the ABC allegedly used company resources to generate funds.

Invented by a computer programmer in 2009, users increase their holdings by dedicating computer processing time using specialised software.

However, most experts spoken to for this article said BitCoin was not taken seriously by the biggest criminal networks and its value rapidly changed depending on how much users were willing to pay for it. By comparison, other virtual currencies were based on the price of gold and other stable factors.

Executive secretary of the Interpol affiliated Asia Pacific Group on Money Laundering, Gordon Hook, said current policies in place would work if countries around the world enforced them properly.

“[Virtual currencies] do pose a definite risk and it’s a serious issue for certain countries, especially in Europe,” he said. “But sophisticated criminals are smart and they’re ahead of the curve in many respects.

“Once countries implement standards they look for the weakest link and when that is in e-money or e-gold they will exploit that.” While Mr Hook was unwilling to discuss which countries were the “weakest link” in global enforcement, virtual currency providers investigated by this paper claimed to be based in a variety of nations from Panama to Switzerland and beyond.

According to law enforcement sources, virtual banks were simply beyond the reach of the law in countries where extradition was not an option.

Federal Justice Minister Brendan O’Connor said virtual currencies were a new and emerging issue and admitted Australia had not raised the topic with any foreign governments.

“It’s something we have to be mindful of . . . but at this point its prevalence, relatively speaking, is minimal,” he said. “The government will look to examine whether we need better oversight over those types of transactions.”

Confusion about just who in Australian government and law enforcement is responsible for tracking virtual currency is palpable.

Mr O’Connor said the Australian Federal Police was the lead agency on the issue despite an AFP spokesman earlier telling the AFR it wasn’t responsible after several days of internal deliberations.

“Well I’m just letting you know as their minister that the Federal Police lead on matters where there might be matters of criminal offences in Federal jurisdictions,” Mr O’Connor said.

“If it’s a state offence then it’s up to the state police to lead – we’re a federation.

“The other federal agencies like Austrac and the Crime Commission of course would be engaged in any fighting of criminal activity . . . because they work in tandem.”

Part of the problem in trying to stop ill-gotten gains being invisibly transferred over the internet is that the use of virtual currencies is mostly legal.

Detective Superintendent Brian Hay, head of the Queensland Police’s fraud and corporate crime group, said a lack of industry co-operation helped virtual currencies avoid the law.

“Once upon a time you waited for complaints to come through the door and you learned from it,” he said. “But this is an environment where the people just don’t talk to us in the first instance.

“The internet is the most dynamic environment policing has ever seen and in an analogue world sometimes we’re struggling to keep up with the digital environment.”